China expands yuan trade with Asian, African nations
Move is a test drive before turning the yuan into a global currency
By SAIBAL DASGUPTA 12 March 2009
China is expanding trading in yuan with some Asian and African countries after a pilot programme involving a few provinces.
It is just about 10 weeks since China announced plans to allow two provinces, Yunnan province and the Guangxi Zhuang autonomous region, to trade payments in yuan with ‘neighbouring trade partners’ in South-east Asia. It was meant to be a test drive before unveiling a full-scale programme on turning the yuan currency into an international one.
The State Council is working on a proposal to extend financial assistance to developing countries in yuan instead of the usual practice of doing it in the US dollar, sources said.
The financial crisis has actually encouraged officials to speed up the currency programme. Giving aid in yuan will encourage beneficiary nations to spend at least part of the money in buying China-made machinery and other goods, it is argued.
The recent loan of US$260 million given by Beijing to the government of Mauritius has a renminbi component, sources said.
The Shanghai Municipal Government has come out with guidelines advising businesses to ‘do a good job in experimenting using renminbi in international trade’. The guidelines said they should ‘firstly boost Shanghai-based enterprises to pilot renminbi in international trade payment with Hong Kong and Macau’.
China provides financial assistance in the form of free cash grants, low-interest loans and supplier’s credit worth billions of dollars to a few dozen countries including Pakistan, Myanmar and several members of the 50-nation African Union. It recently granted a US$500 million loan to Pakistan.
Li Zhaoxing, the spokesman for China’s parliament, said last week that the financial crisis will not have any impact in the country’s assistance programmes.
The government expects some of the aid money to result in higher exports.
A related development is the series of currency swap agreements that China has signed in the past few months, the latest one being with Malaysia. Similar deals have been inked with Japan, South Korea, Vietnam and the Hong Kong special administrative region.
‘The currency-swap deal is multi-purpose,’ Joseph Yam, chief executive of the Hong Kong Monetary Authority said in Beijing recently after signing a pact with Zhou Xiaochuan, chairman of the People’s Bank of China. ‘On the one hand, we can certainly use it if there is need for liquidity and for the purpose of financial stability. On the other hand, it’s useful as far as development of yuan business is concerned, such as yuan trade settlement,’ he said.
Mr. Zhou had earlier said that future settlements using the US dollar would prove to be problematic if the dollar’s value fluctuates drastically.
The main purpose of currency swap deals is to protect Asian nations from a major currency crisis in future. But officials in Beijing also expect it to aid exports.
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China expands yuan trade with Asian, African nations
Move is a test drive before turning the yuan into a global currency
By SAIBAL DASGUPTA
12 March 2009
China is expanding trading in yuan with some Asian and African countries after a pilot programme involving a few provinces.
It is just about 10 weeks since China announced plans to allow two provinces, Yunnan province and the Guangxi Zhuang autonomous region, to trade payments in yuan with ‘neighbouring trade partners’ in South-east Asia. It was meant to be a test drive before unveiling a full-scale programme on turning the yuan currency into an international one.
The State Council is working on a proposal to extend financial assistance to developing countries in yuan instead of the usual practice of doing it in the US dollar, sources said.
The financial crisis has actually encouraged officials to speed up the currency programme. Giving aid in yuan will encourage beneficiary nations to spend at least part of the money in buying China-made machinery and other goods, it is argued.
The recent loan of US$260 million given by Beijing to the government of Mauritius has a renminbi component, sources said.
The Shanghai Municipal Government has come out with guidelines advising businesses to ‘do a good job in experimenting using renminbi in international trade’. The guidelines said they should ‘firstly boost Shanghai-based enterprises to pilot renminbi in international trade payment with Hong Kong and Macau’.
China provides financial assistance in the form of free cash grants, low-interest loans and supplier’s credit worth billions of dollars to a few dozen countries including Pakistan, Myanmar and several members of the 50-nation African Union. It recently granted a US$500 million loan to Pakistan.
Li Zhaoxing, the spokesman for China’s parliament, said last week that the financial crisis will not have any impact in the country’s assistance programmes.
The government expects some of the aid money to result in higher exports.
A related development is the series of currency swap agreements that China has signed in the past few months, the latest one being with Malaysia. Similar deals have been inked with Japan, South Korea, Vietnam and the Hong Kong special administrative region.
‘The currency-swap deal is multi-purpose,’ Joseph Yam, chief executive of the Hong Kong Monetary Authority said in Beijing recently after signing a pact with Zhou Xiaochuan, chairman of the People’s Bank of China. ‘On the one hand, we can certainly use it if there is need for liquidity and for the purpose of financial stability. On the other hand, it’s useful as far as development of yuan business is concerned, such as yuan trade settlement,’ he said.
Mr. Zhou had earlier said that future settlements using the US dollar would prove to be problematic if the dollar’s value fluctuates drastically.
The main purpose of currency swap deals is to protect Asian nations from a major currency crisis in future. But officials in Beijing also expect it to aid exports.
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